Lack of terrorism insurance blamed for stalled projects

The issue of terrorism insurance continues to cause strife in the commercial mortgage arena.

Large loan lenders have been clamoring for the federal govern ment to act as a terrorism insurance stopgap for more than six months with no apparent results.

Finally, President Bush got behind the need for the federal government to backstop potential losses to real estate lenders and owners. He implored the Senate to pass terrorism insurance legislation as the House did in November.

In classic political posturing, Bush got behind the legislation because "it is a jobs issue."

In his comments last Monday, Bush cited two projects that don't have financing because of the unavailability of terrorism insurance. He said the projects could create some 18,500 jobs.

Interestingly, the projects were a $400 million, 1.5 million-square-foot speculative Hyatt Corp. office complex in Chicago and a $2 billion resort in Nevada.

The lack of terrorism insurance, however, is not the only issue these mega projects face in getting financing. The recession and a staggering rise in loan defaults in the past six months have to be counted prominently as well.

New hotel projects, like the mixed-use City Center Park development near Richmond's convention center, are on hold everywhere - and not because terrorism insurance is unavailable.

Seemingly at odds with the national trend, Richmond's downtown is abuzz with new construction activity.

Just as construction on the Turning Basin project is winding down, several projects east of that location in Shockoe Bottom are well under way:

The former Philip Morris building between 18th and 19th streets on Cary Street is being transformed into 96 apartment units by Louis Salomonsky. It will be called Canal Walk Lofts.

A new grocery-anchored shopping center across from Tobacco Row is being developed.

Rob Kasper of Shockoe Virginia Co. says that the old Richmond Cold Storage building off of 17th Street north of Broad Street soon will be rehabilitated into 200 apartment units

Mark Lindsey, a principal at architectural firm Baskervill & Son, says that his firm has inked a lease for 28,000 square feet of space at what will be a 109,000square-foot mixed-use renovation of the old Hawkeye Manufacturing building at 15th and Dock streets. It will be called Canal Crossing.

Rate watch

Commercial mortgage rates pushed upward during the past month and are currently in the 6.9 percent to 7.40 percent range for 5- and 10-year loans, according to the Barron's/John B. Levy & Co. National Mortgage Survey.

The steady increase in yield on the U.S. Treasury, which makes up a large part of commercial mortgage rates, was partly offset by a compression in mortgage spreads, the premium over Treasury yields that lenders charge for commercial mortgages.

The compression in spreads, which ranged from 10 basis points (.10 percentage points) to 15 basis points (.15 percentage points), is basically a result of a supply and demand imbalance. Commercial mortgage lenders have excess cash available for new financings.

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Andrew Little is an investment banker with John B. Levy & Co.